Cojan the Integration Game FINAL

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Descrierea CIP a Bibliotecii Naionale a RomnieiCOJANU, VALENTIN

The Integration Game: Strategic Interaction in the Processof the EU Enlargement

/ Valentin Cojanu -Bucureti:ISBN 973-


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Valentin COJANU

The Integration Game: Strategic Interaction

in the Process of the EU Enlargement


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ISBN 973-

Copyright Editura AGER Economistul, 2004

Autorul poart ntreaga rspundere moral, legal i material,fa de editur i tere persoane, pentru coninutul lucrrii.


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To my wife Aura,

for her generosity, so lovely shared


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CONTENTS

List of Tables...................................................................................List of Figures.................................................................................Foreword.........................................................................................Acknowledgments...........................................................................Abstract...........................................................................................

I. Introduction.................................................................................

II. Problem statement.....................................................................A. Rationale for the research........................................................B. Research questions and objectives..........................................C. Scope and limitations of the study...........................................D. Definition of terms..................................................................

III. Review of the Literature.........................................................A. Overview.................................................................................B. Discussion ..............................................................................

1. Objectives of integrating countries: Theoreticalperspective.........................................................................

2. Objectives of integrating countries: Empirical


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arguments...........................................................................3. Constraints..........................................................................4. Preferences and strategic structures ...................................5. Summary ............................................................................

IV. Research methodology ............................................................A. Background on Community decisional mechanism................B. Situational variables and constraints........................................

1. The international level of dependence................................2. The national level of independence.....................................3. The issue area of interdependence .....................................

C. Instrumentation .......................................................................D. Data collection .......................................................................E. Data analysis .........................................................................

V. Bargaining power: resources and constraints..........................A. The agriculture dossier ...........................................................B. Bargaining position of the European Union ...........................

1. Uncontrollable sources........................................................2. Controllable in the long-run (CLR) sources........................3. Controllable in the short-run (CSR) sources........................

C. Bargaining position of Poland.................................................

1. Uncontrollable sources........................................................2. Controllable in the long-run (CLR) sources........................3. Controllable in the short-run (CSR) sources........................

D. Bargaining position of Romania..............................................1. Uncontrollable sources........................................................2. Controllable in the long-run (CLR) sources........................3. Controllable in the short-run (CSR) sources........................

E. Summary.................................................................................

VI. Formulation and solutions of strategic negotiations..............A. Assessment of issue bargaining power....................................

1. Enacted power for EU.........................................................2. Enacted power for Poland...................................................

3. Enacted power for Romania................................................4. Summary.............................................................................

B. Assessment of general power and institutional stability..........1. A qualified view on general power......................................2. Institutional stability............................................................

C. Outcomes of negotiations........................................................


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1. The EU-Poland strategic game............................................2. The EU-Romania strategic game.........................................3. Discussion...........................................................................

D. Anticipation of objections.......................................................1. Objections on methodology.................................................2. Objections on analysis.........................................................

VII. Conclusions..............................................................................

Bibliography....................................................................................

Appendix A......................................................................................Appendix B......................................................................................Appendix C......................................................................................Appendix D......................................................................................Index................................................................................................

List of Tables

Table 1. A comparative view of the non-traditional gains fromintegration...........................................................................

Table 2. Estimations of relative decisional power within theenlarged EU Council...........................................................

Table 3. Estimates of indices of institutional stability.......................Table 4. Negotiating agenda of the EU-Poland game.......................Table 5. Negotiating agenda of the EU-Romania game....................

Table 6. Overall view on the possible outcomes when the EU plays PD.............................................................................

Table 7. Estimations of payoffs with Agricultural TradePolicy Simulation Model (ATPSM)...................................

Table 8. Overall view on the possible outcomes when the EU plays'issue weak'.........................................................................

List of Figures

Figure 1. Theoretical model of bargaining power in strategicnegotiations......................................................................

Figure 2. A generic game of strategic interaction.............................


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game-theoretical contributions with application to international

economics and, particularly, international trade, just to make

clearer the point that the analysis of games of strategy is

particularly suited to offer perceptive venues for research on the

topic of integration. The author's choice is for the subject of

negotiations in the process of the EU enlargement, which

conveniently fits a twofold objective of investigation: to adapt

established models of analysis to the practical needs of

understanding the benefits a country may reasonably expect to

derive from negotiations.

An elaborated and thoroughly searched section on the

literature sheds light on those key contributions, which could

enrich the practical meaning of strategic negotiations in the context

of integration. The reader is thus invited to extend its intellectual

journey beyond the informational-rich text and actively take part in

the debate. The lead topic evolves around the strategy dimension.It is in this key that investigative questions are proposed and

hypotheses formulated to design an arguably perfectible research

methodology. It would hardly be more appropriate to make thus a

perfect match between an objective analysis and a subjectively

imposed need to deal with such sensitive issues as the expected

results of negotiations, the political nature of integration process,

or the intricate web of interests in the agricultural dossier.

To stick with that central theme and still reach validconclusions based on a substantive investigation, an inevitable

trade-off with relatively marginal matters has to be decided. That

hardly has any impact on the flow of arguments. Rich

developments of concepts, as well as a comprehensive review of


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literature position the study on an appropriately equidistant

research path toward diverse approaches, which have been making

up the theory and policy of economic integration for the last 50

years, including the provoking debates on its macroeconomic

effects. A point in case is the analysis of the objectives the

negotiating countries pursue on the way to integration, and

particularly in that setting which characterizes the European

process. The author remarks the good strand of researches, which

attempted to build support in favor of the benefits the theory on

integration claims to exist. The book excels at this point, as it aims

at assessing comparatively various results of the quantitative

analyses and accompanying rationales about parameters used to

ascertain the likely impact of integration on negotiating countries.

Along the presentation, advantages and disadvantages of various

perspectives are contrasted in order to get a clearer picture of the

economic evolutions and a better understanding of the relationship

between political conditions and economic behavior.

Besides proposing an interesting view on past works, the

book is however about original research. The design of

methodology is constructed on the rationale that the issue of the

Central and Eastern European Countries' accession to the

European Union was not actually the object of negotiations . A

whole chapter tries to argue instead that the terms on which

negotiations proceeded were depended on an interactive

relationship of decision-making processes, policy developments,and institutional settings. A deconstruction analysis is carried

out to observe potential and real reactions based on both factual

evidence, and findings from the literature. Results of

negotiations are simulated given specific constraints and


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existing resources of bargaining power. The rigorous treatment

combines with social and political details, which eventually

prove decisive to experiment the negotiating behaviors of both

the EU, and the two candidate countries Poland and Romania

considered for this application. What the reader eventually has

consists of various scenarios as to the strategic dimensions of

negotiations, which is probably the most challenging part of the

analysis.

The way is conceived and researched, this book may be

confidently positioned as a reference paper, which consistently

voices those reasoned and realistic arguments of the economic

literature on European economic integration. It is a worthwhile

contribution of Valentin Cojanu to that analytical thinking,

which rests on such premises as elaborated style, attention to

methodology design, commendable conceptual developments,

and reliable argumentation. Even the reader, which is notfamiliar with the conventional theses of economic integration,

may still find a convincing path to understanding negotiations in

international relations, all this with a sense of scientific

investigation and meaningful conclusions. In other words, he is

about to read a book with capital "B".

Professor Dr. Dumitru Miron

Academy of Economic Studies Bucharest


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Acknowledgments

he work to this study has benefited from encouragements and

suggestions kindly addressed by friends, professors, and

family. Although the author retains the sole responsibility for the

ideas and commentaries expressed therein, recognition for the

valuable support received is certainly due.

T

The quality of the investigation was greatly enhanced by the

dedicated supervision of Dr. Jerry Haenisch, Chancellor of Preston

University. The author was particularly privileged to have kept


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with him a professional working relationship during the years spent

on this research, a source of advice, which finally proved so

constructive.

For their comments on earlier drafts of this study, the author

remains grateful to Professors Mihai Korka and Dumitru Miron

from the Academy of Economic Studies in Bucharest. They helped

the text improve its readability and convey a more comprehensible

message.

This book makes inroads into unexplored themes of research

in Romania, but this assertion ought to sound like a confession

rather than an ambition. The point is that substantial time was

spent with collaborators on finding out a relevant approach for

Romania on integrating game theory and enlargement negotiations.

It is thus worth mentioning that many working hypotheses took

shape in the framework of Pre-Accession Impact Studies Programsat the European Institute of Romania in Bucharest. The intellectual

and constructive atmosphere created during the numerous

workshops and conferences, which accompanied that process, has

proved uniquely inspiring.


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Abstract

his study presents an adapted model of 2 2 games of

strategy to provide arguments for understanding the various

levels of interaction between the parties during negotiations and

attempts to identify the strategic structures of the integration

process of the CEECS into the EU. The arguments are elaborated

against the background of negotiations on agricultural trade issues,

whose conclusion became effective also for the last two candidate

countries Bulgaria and Romania in June 2004.

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The research model builds on the existing analytical framework

developed in the works of Aggarwal and Allan, Aggarwal and

Cameron, Brams and Kilgour, Conybeare, and Leaps, and Grigsby.

The method considers three levels of interaction dependence,

independence, and interdependence and gathers each partys

strategic capabilities in a game-theoretical context with the help of

three variables: institutional stability; overall power; and issue

bargaining power.

The findings present a detailed analysis of bargaining power

and consider the predicted solutions to negotiations. Bargaining

power is transformed from potential to effective influence a party

can wield during negotiations by transformational factors. Analysis

of these factors is illustrative of the bargaining strength on the

issue and helps square the determinants of strategic interaction.

The models predictions closely follow the results of

negotiations in every significant detail. Moreover, the overviewtableau of possible solutions helps assess better the gains and

losses from negotiations given the interplay of interests.


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relatively close economic ties all indicated that a negotiatedrapprochement between the two parts of Europe would naturallycome next.

This imperative eventually led to the conclusion of legal

arrangements between the EU and individual CEECS - Poland,Hungary, the Czech Republic, Slovenia, Estonia, Bulgaria,Romania, Slovakia, Lithuania, and Latvia - in the form of theEurope Agreements (EAS), and the accession negotiations startedin 1998. With these initiatives, the EU embarked on the fifth wave

of enlargements since its founding in 1957. This process proveddifferent from the past especially because it simultaneously had toconfront a large number of candidates and to consider their evident

development gaps vis--vis the EU. The income differences areprominent whether they are measured at official exchange rates orat purchasing power parities; whether the comparison is made withthe EU-15 average or with the lowest ranked EU-15 memberstates. As for the countries this study particularly considers, whennegotiations began the income level in Romania (at officialexchange rates) was 8% of the EU-15 average and ca. 17% of thelevels in Greece or Portugal, the less developed EU countries. For

a relatively wealthy and developed CEEC as Poland, thecorresponding numbers were 20% and ca. 40% (Quaisser and Hall

4).The present enlargement process stands out for another

reason as well: the CEECS are taking on a far more complex bodyof legislation than did previous applicants. The EU institutionalaccomplishments of the Single Market and European MonetaryUnion, as well as its policy developments in the field of judicialand foreign affairs significantly stretch the legal and technicalcapacity of the applicants as they are starting with much more

simple institutional framework at national level. It is only theeastward enlargement, which formally makes the adoption of

acquis communautaire the whole body of the EU legislative acts,along with secondary legislation and policies derived thereof -mandatory by accession.

In annually issued Regular Reports, the EU identified 31chapters of the acquis, covering virtually all fields of Communitygovernance, such as free movement of production factors,


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education, statistics, judicial system, property rights, internationalrelations, competition and industrial policies, and, in chapter seven,of particular interest for this study, agriculture.

Agriculture is considered to be a particularly sensitive

subject because agriculture in the CEECS is simply much moreimportant, in terms of its share in production, employment andfoods consumption, than in the EU on average, while its impact onevery-day situations of life and work is crucial for countries likeRomania and Bulgaria. The CEECS would constitute 22% of the

population of the enlarged EU; would contribute to the GNP, andthereby to the budget, only around 4%; would increase agriculturalarea of the EU by 45%; and would nearly double employment in

agriculture. By consequence, according to figures of the EuropeanCommission (EC), the enlarged EU will be more agricultural thanthe EU-15 (Analysis of the Impact15). While the EU agriculturalexports to these countries rose substantially after 1990, the CEECSexports to the EU only increased slightly, making most of thosecountries net importers of agri-food products from the EU(European CommissionRegular Reports; Frohberg and Hartmann).

As these considerations suggest, unveiling the interests at

stake is expectedly a different matter for the two partners. While inthe West the emphasis is put on maintaining a desired level of rural

development, along with the privileges acquired historically for thefarmers, in the East concerns about the viability of agriculture asan economic activity take the leading role in shaping a certain

position in negotiations.The constraints of the acceding countries are mostly due to a

long history with central-planned policies. Although favorable landendowment and climatic factors should have sharpened theircomparative advantages in agro-food business, systematic neglect

of this industry evolved in precarious regional development.Hallets study reports how the regions dependent on agriculture

prevalently rank among the most socially vulnerable. One notableresult emphasized by Pouliquen is that the contribution of thesemi-subsistence sector to the total agricultural production of theten CEECS is at least in the order of half against approximately20% in the EU (41, 63).


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The privatization and restructuring processes of the 1990shave not succeeded in revitalizing the sector in spite of continuingconvergence of average farm prices towards Community levels asreported in the literature (e.g. Pouliquen 15; European

Commission, Agricultural Situation and Prospects 31). Lowproductivity levels, estimated by the EC at around 11% of the EU level ( Agricultural Situation) and increased fragmentation of

production in the form of individual holdings reported by severalother studies (e.g. Josling and Tangermann; Pouliquen) have

placed considerable restraints on the agriculture development.An immediate consequence of the convoluted evolution of

agriculture was the near absence of farm lobbies at the outset of the

negotiating process, a time when all efforts and energy weredirected to re-introduce the elements of the market economy, suchas land reform, price liberalization or the opening-up of foreigntrade. A partial exception was Poland, where private ownership

prevailed in the agricultural sector during the communist regime(Note on Polish Agriculture) and allowed thus for a continued andmore assertive defense of private interests.

The conventional analysis represented by the theory of

economic integration helps in explaining the rationale underlyingnegotiations set in such a context, but leaves aside the strategic

considerations inherently associated with that process. As the waynegotiations are structured and the inherent conflicting nature ofdossiers like "agriculture" eloquently shows the analysis of the

process of strategic interaction proves essential in understandingthe economic terms on which the integration negotiations proceedand conclude.

This study presents an adapted model of 2x2 games ofstrategy to provide arguments for understanding the various levels

of interaction between the parties during negotiations and attemptsto identify the strategic structures of the integration process of the

CEECS into the EU. Constructs are accordingly identified fromgame theory and economic theory and integrated. The researchmodel builds on the existing analytical framework developed in theworks of Aggarwal and Allan, Aggarwal and Cameron, Brams andKilgour, Conybeare, and Leaps and Grigsby.


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The arguments are elaborated against the background of theinteraction pattern of European Union enlargement process and theissue of agricultural negotiations, whose conclusion becameeffective also for the last two candidate countries Bulgaria and

Romania in June 2004. The strategic analysis of negotiationsaddresses first the theoretical framework in which to build a modelof bilateral negotiations; then, the model is used to test and predictthe possible outcomes of negotiation on specific issues in general,and specifically for the purpose of this study in relation to

negotiations on agriculture. Resemblance with other classes ofinteractions, e.g. debt rescheduling, enforcement of internationalagreements, and security aspects, indicates the option of

considering 2x2 games in an empirical context, an issue that isdeveloped in the section on methodology.

As the CEECS negotiated separately their accession, achoice had to be made as to the most appropriate case(s) toconsider. The option was to include an application of the model onPoland and Romania, the largest agricultural countries in CEECSaccording to data on agricultural land and the contribution ofagriculture to GDP.

The findings present a detailed analysis of bargaining powerand offer predicted solutions to negotiations for the two cases

considered in the application. Bargaining power is transformedfrom potential to effective influence a party can wield duringnegotiations by transformational factors. Analysis of these factorsis illustrative of the bargaining strength on the issue and helpssquare the determinants of strategic interaction.

The initial presumption that the cases of both Poland andRomania would provide adequate inputs for the analysis provedright. The model's predictions closely follow the results of

negotiations in every significant detail. Moreover, the overviewtableau of possible solutions helps assess better the gains and

losses from negotiations given the interplay of interests and somakes the methodological contrast with conventional approachesto integration more visible.

A concise introduction to the subject of strategic negotiationsis provided in Chapter II. Despite the major achievements in theeconomic research, the theme proposed here still finds at the


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junction of conventional with innovative approaches to the study ofeconomic interaction when several countries integrate. Chapter IIIon the literature seeks to make evident these various and oftenconflicting intellectual strands and to show how they resonate with

the present research. In Chapter IV on methodology a model isproposed to find solutions of strategic negotiations. The methodconsiders three levels of interaction dependence, independence,and interdependence - and three corresponding variables - overall

power, institutional stability, and issue bargaining power to

frame each party's strategic capabilities in a game-theoreticalcontext. This study's findings are grouped in two chapters: ChapterV analyzing bargaining power and Chapter VI presenting the

solutions to negotiations. Before concluding, a section onanticipation of objections attempts to identify clearly the range ofsituations to which the proposed model applies. Chapter VII endsthis study with conclusions and suggests implications for furtherapplication of games of strategy in negotiations.

IIProblem statement

A. Rationale for the research

he choice of an appropriate approach to the subject has beeneased by a considerable scholarly tradition. The research on

explaining strategic interactions by means of game-theoreticalconcepts has made significant headway for long. From the earlydevelopment of the theory in the interwar period, the approachgained progressively in acceptance until its virtual dominance ofeconomics (Foss 6) around the end of the 1980s. The explosive

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dominance of game theory as an analytical tool has made a widearray of disciplines, such as industrial organization, laboreconomics, public finance, monetary policy, economic history,law, marketing, political science or sociology, accept and explain

behavior of companies, governments or groups of actors in termsof strategic options.

In the field of international trade alone, the interest stretchesover an ever more expansive range of topics, from games of tradeliberalization (McMillan, Game Theory; Conybeare; Kennedy;

Patterson) or settlement of disputes (Btler and Hauser) to the newtheories of strategic trade policy (Benchekroun et al.; Abbott andKallio) or politics of trade (Grossman and Helpman; Helpman). At

the same time, arguments emerging from adjacent fields, such aseconomic development (Wolkoff; Grabowski), economic history(Greif), institutional economics (Juli), political science (Milner andRosendorff), industrial organization (Graham), internationalrelations (Allan and Schmidt) all contributed to adding newinsights, and evidently broadened the view over the internationaltrade issues against a unified background.

One of the findings this rich scholarship proposes is that

little refinement may be expected for both trade theory andmathematics of games; instead, the main advantage of the new

approach has proved to be an improved and practicalunderstanding of how states and firms wield commercial policieswhen their interests interact. The work of Schelling has the meritof both pioneering the strategic analysis of interdependence amongnations and emphasizing the risk of misappropriation of gametheory for understanding the proper meaning of decision-making

processes in situations of conflict. He remarks:We change the character of the game when we drastically

alter the amount of contextual detail that it contains It is oftencontextual detail that can guide the players to the discovery of a

stable or, at least, mutually nondestructive outcome. We have torecognize that the kinds of things that determine the outcome arewhat a highly abstract analysis may treat as irrelevant detail (162).

What makes this approach the more so problematic is itsversatility in yielding provoking results even if the texture betweentheory and economic evidence is somewhat loose. Economists


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must confront a theoretical construct imported from mathematicsthat has its own laws and grows as such autonomously. Snidalconceptually presents that sort of dilemma in the followingstatement:

To apply the deductive power of game theory directly, wemust tighten up correspondences between empirical situations andgame models, and separate assumptions from predictions. As wedo this, the model and theory will provide a guide to relevantempirical evidence, just as the evidence will provide a guide for

evaluating and revising the model (36).Additional insights may be found in the papers of Jervis and

Kreps, who remark that the flawless logic of different game models

may often run counter common intuition, or worse, be mostlyinvalidated by experimental research. Caves also consideredsimilar concerns, but only recently Ghemawat (Games) took on thetask to investigate the predictions of game-theoretic models. Hischoice of cases makes sufficiently clear that some competitivemoves are well grounded on inside information about rivalsinternal organization or their muted strategic plans, which rendersfutile the use of econometrics techniques in predicting the outcome

of the game.A series of other papers (e.g. Brandenburger; McGahan)

establishes the tradition of looking for strategic aspects ofcompetition amenable to be treated as games, and then extractingthe rationale behind the interaction by means of a suitable formaltreatment. Instead of assembling game models around sometypologies of games or situations, there is this time a focus on the

peculiarity of the case, with a correspondingly increasedcontribution of managerial insight.

In observance of these precautionary references to

methodology, this study presumes that the search for the empiricalassessment of bargaining outcomes should specifically lie at the

core of integration negotiations, and that it should appropriatelymake use of insightful and practically relevant techniques.

The value of the proposed research framework thus predominantly rests on both the structure and form of thearguments. That invites the researcher to an analytical work

balanced between the specifics of how the outcome actually comes


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consumer. In a different line of argumentation, authors likeConybeare (13) or Baldwin (67) consider more realistic to directthe analysis to the process in which the parties adopt decision ruleswhen they face strategic options. Basic economics draws attention

to the fact that there is an inherent conflict between national and private interests: lowering barriers at home results in increasedcompetition from abroad and hence lowered firm profits.

Given these various treatments, the strategic perspective onthe integration process poses the problem of research design so that

the investigation reveals the underlying causes of conflict. Beforethe next chapter takes up this task, preliminary research guidancetakes to the center stage the cautious approach towards integrating

the individual case into the generic model. The analysis of strategicaspects of integration negotiations is conveniently apt to make useof game theory, but the procedure for analysis is peculiarlydependent on the research objectives.

B. Research questions and objectives

If research is conditional upon the particular context ofnegotiations, the negotiation process itself is influenced by a set of

variables, which models the strategic interaction. One of theobjectives of the study is thus to define and justify these variablesas determinants of negotiations in the accession process.

The issue of integration between groups of countries withdissimilar economic potentials brings inevitably into debate

strategic considerations. Not only does the development gap makethe negotiating agenda arduously disputed because of different

representations of gains, but other contiguous matters as well, suchas economic security, viability of the nation-state, and disruption ofthe social order, raise vital questions on the way to integration.

The agricultural dossier of the EU enlargement suitsparticularly well in this picture because of the diversified nature of

its conflicting topics. A first hint is inferred from nuances of itsimportance: the negotiations over agriculture has been described asa political landmine, implying large conflicts of interest (Gacs

and Wyzan), but nevertheless a win-win project, that, ifsuccessful, will leave no losers by the wayside (Fischler).


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The latter consideration, which aptly belongs to a former EU Commissioner for agriculture, encapsulates the rationale for ananalysis of the strategic aspects of negotiations: each party aspiresto a winning position in rather improbable terms of what success

may be taken for. Because the interplay of interests is preciselybased on these different representations of the terms in whichnegotiations are to be concluded, the analysis proposed by thisstudy is required to shed light on the underlying determinants of

possible outcomes and to suggest with anticipation improved ways

of conduct.The interaction between nation-states is then modeled in

classes of games or strategic structures of interaction on the basis

that the incentives of each party are revealed by their behavioralstance, while their negotiating agenda is either explicitly orimplicitly formulated in official documents, historical contexts or

publicly voiced statements. It is this attempt, which makes thegame-theoretical construct necessary because both behavior andnegotiations are predominantly based in the integration process onthe interplay of expectations.

C. Scope and limitations of the study

The debate on negotiations regarding the integration processof the EU has been enriched from a considerably large variety ofanalytical perspectives. As previously suggested, the economics ofintegration seems particularly suited to engender cases of strategicintegrations. The paper consequently limits its scope to thoseaspects of understanding strategic responses in an interactivecontext. Attention is particularly laid on the building blocks of the

logic of choice in situations that involve rivalry. The way gametheory facilitates a better design of strategic behavior, and,reciprocally, how negotiation moves can be thought of as part of agame are the guidelines of the present investigation. Indeed, a

foray into the governments behavior given the challenges ofintegrating countries with very different economic potential willtry to highlight possible strategic policy interrogations.

Because of this narrow framework and practical objectivesof the analysis, important aspects of integration negotiations have


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for these reasons that a review of the meaning of concepts, whichthis analysis starts upon, becomes necessary.

Binmore presents the game-theoretic approach as adescriptive (vocabulary and basic ideas) and analytical (formal

tools) use of game theory. It enables quantitative predictions, aswell as qualitative insights but only to the extent the study decideson what aspects of the situation are of particular interest to theresearch. From this perspective, the research design is to a lesserextent constrained by the formal model, and thus basically rests on

the study objectives.It is increasingly accepted the argument (Schelling;

McDonald; Branderburger and Nalebuff) that the economic

contexts are amenable to analysis of games of partial conflict, i.e.variable-sum games, in which the players preferences are notdiametrically opposed. A strategic process may accordingly bethought as the opposition of the interests of the players in aninterdependent process whose outcome may involve a situation ofconflict or not. It is not the conflict, which exclusively describesthe strategic nature of interaction; the whole variety of anticipatedevents in association with gains orpay-offs in game-theoretical

parlance, whose predictable occurrence depends on the otherplayers' decisions, is instead the proper description of a strategic

interaction.A game refers in this study to strategic negotiations

conducted within the process of the EU enlargement. It is basicallya study of conflict of interest by rational players, devoid of anyethical or behavioral considerations (Binmore 6).

Negotiation for the purpose of the study is largelyinterchangeable with bargaining, although it does not borrow itsclassical formal interpretation from game theory. Grossman and

Helpman provide a definition of bargaining which is significantlycloser to the particular situation this study envisages: bargaining

can lead to a trade agreement in which each country makesconcessions in exchange for desired changes in the policies of its

partners (1). Preference is given to the former for describing thestrategic interaction, while the latter proves its importance indevising another useful term, bargaining power. According toone of the original definitions, the display of power in bargaining


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is the ability or skill in duping the other fellow as John Nashinitially highlighted (quoted in Binmore).

The sense in which the negotiating parties exert bargainingpower is certainly deprived in this study of that merchant facet.

The inquiry attempts instead to assess the strength of bargainingpower by comparing the degree in which the initial demands findthemselves in the final results of negotiations and the conditionsconducive to that outcome. A mathematical interpretation of

bargaining power has normally nothing to add on conditions.

This study however embraces both aspects of bargaining power capability to command influence and possibility to behave thisway. There is thus promoted a concept based on the exercise of

power, which induces learning experiences in the negotiationprocess.

IIIReview of the Literature

A. Overview

he topic of beneficial enlargement of an integration structureis theoretically exposed to a large variety of arguments. This

review focuses on how both orthodox and unconventionalexplanations translate into strategic options the negotiating partiesmay consider.

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Integration negotiations are typically understood as acontinuous process in which countries' preferences for a certainoutcome are shaped by constraints originating from three levels. Acountry's dependence on its partners' decisions and the influence of

its domestic politics represent two levels of analysis, which havereceived considerable treatment in the literature. Lately, argumentson contextual areas of negotiations or the interdependence levelhave been considered as equally significant for properunderstanding of interaction.

The use of game-theoretical techniques has evolved as awidely accepted approach of integrating different sources ofconstrained behavior into analysis. The way parties may conceive

under constraints their ranking of the mutually preferableagreements distinctively lies at the core of the bargaining problem.It is thus possible to infer various strategic structures ofnegotiations and subsequently predict the preferred course ofsettlement on a specific issue.


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B. Discussion

1.Objectives of integrating countries: Theoretical

perspective

The economics of integration has been traditionally regardedas a theoretical body on the benefits the participating countriesenjoy in the form of static and dynamic effects of establishing afree trade area with or without a common commercial policy.Recent research has however challenged this conventional view

and added various arguments in explaining why countries seek tonegotiate integration agreements (IAS).At a general level, the theory falls short of providing a

unified approach to the representation of countries' objectives in an

integration game. Some authors (e.g., Snidal 25) find metho-dologically correct to model nations as goal-seeking actors, whileothers (e.g. McMillan, Games 77) question the plausibility of thecoherence and consistency of such an endeavor. Zrn shares amore balanced view when he dispels the theories of interestformation that assume one fundamental motivation in all statesacross all issue areas (299).

These different perspectives are nowhere better revealed as

in the contrasting debate on traditional and nontraditional gainsfrom integration. While the early analysis of Viner has given riseto a remarkably standard terminology to describe the effects onwelfare, economists are less convergent toward a similar cohesiveapproach as to other objectives integrating countries could pursue.

In the traditional vein, the central tenet rests on the classical proposition that economic integration creates trade and thusimproves welfare by moving participating countries closer to free

trade (Markusen et al. 320). The expected benefits should nothowever be taken for granted. The Viner-inspired research stressesthe importance of trade diversion as a possible welfare-worseningeffect of an IA.

A special case, when trade diversion could either improve orleave welfare unaffected, is illustrated by several studies whichaccount for relaxed assumption on domestic consumption and pro-duction patterns (Markusen et al. 315-18; Fernndez 5). Additionalresearch (e.g. Schiff) makes the point of how dependent the


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welfare impact is upon the underlying conjectures such as countrysize, rules of origin, and the likelihood of illegal transactions.

The traditional analysis also emphasizes that no alternativetrade agreement, including free trade, could make a member

country better off in the presence of an optimum tariff (Markusenet al. 318). The argument is based on Johnson's seminal study ontariff retaliation and concerns the foregone opportunity of a largecountry to improve its income (the terms of trade effect) byimposing a sufficiently small tariff on imports and/or taxing its

exports.The picture of the net effects is further obscured if one

considers the unequally distribution of gains among the member

countries. Some authors (e.g., Helleiner 759; Lindert 187) arguethat the integration process disproportionately favors the smallercountries thanks to the larger impact of the new trade opportunitieson the structure of their markets incentives. According to someother studies surveyed by Fernndez, there are the economicallyweaker countries, which supposedly bear the heaviest adjustment

burden as a result of their previously larger protectionist structures(5).

The dynamic strand of analysis surveyed in the work ofBaldwin relegates these results to some marginal importance (9),

and underscores instead the overwhelming impact of scaleeconomies and investments on welfare thanks to increasedopportunities for growth in a larger market. Casella howevercautions against the reliability of theoretical predictions beforesearching for the actual determinants of market access (23-24).Salvatore escapes the difficulty of providing a clear-cut answer byrecommending an indicative list of various presumptions againstwhich countries could judge the attractiveness of the integration

choice (293-4).In the light of these findings, the traditional objectives

supposedly underpinning IAS appear ambiguous (Schiff andWinters 1; Abrego et al. 3), subject to critical assumptions(Markusen at al. 312-22) or rather of little relevance (Whalley 22).Moreover, the ramifications of economic theories trying to explainintegration unexpectedly leave one with predictions that aresometimes diametrically opposed (Reiner 39). These uncon-


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vincing results make Abrego et al. conclude that no set of gene-rally accepted propositions regarding their effects has yet emergedto guide policy makers and public officials (2).

A positive message emerges instead from the research on

nontraditional gains. Countries are now given a more active role indeciding on the terms of an IA. Several studies (e.g., Schiff andWinters 2-6; Whalley 15-20) suggest that the motivating factorsshould be better ascribed to the externalities accompanying this

process, including here military security, credibility of reforms,

trade leverage, as well as other non-economic aspects.Table 1 offers a glimpse of the nontraditional gains of the

IAS. Although largely overlapping, the wide range of arguments is

nevertheless indicative of the sophistication underlying thedecision-making process. According to the objectives highlighted

by Table 1, bargaining power is seemingly the most pervasiverationale underlying negotiations. The integration context favora-

bly exposes negotiating countries to various opportunities in theirsearch for improved bargaining power.

In its simplest form, the exploitation of bargaining powernormally involves an exchange of concessions to derive changes in

the policies of the partners (Grossman and Helpman 1), but itshould not be seen however as an inevitable consequence. Some

countries have to negotiate the accession just to be in the positionof exercising this possibility (the level playing field option inTable 1), while others are much better positioned in order toimpose their own rules (policy autonomy option in Table 1). Adose of caution is therefore to be expected in the case of smallercountries for which Helleiner thinks the access to the integrationarrangement is likely to be highly conditioned (780).


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Whalley Fernndez Baldwin

Strategic linkage: the

security arrangementsamong the integrating

countries are bettersupported by

integration

agreements. (18)

Bargaining power:

the transaction costsinvolved in reaching

an optimal negotia-ting position are re-

duced by greater

coordination of tradepolicies with respect

to third countries.

(19)

Multilateral/Regional

interplay: the actual

or potential use of

regional agreementsfor tactical purposes

by countries seekingto achieve their multi-

lateral negotiatingobjectives. (19)

Coordination

device: uncertainty is

reduced as to who

will be the gainersfrom liberalizing.

(20-21)

* This presentation remains faithful to the order of the arguments as

originally exposed in the referred authors works.

The argument is used to explain the outward behavior aswell. Generally, economists like Fernndez admit a common senseapproach based on the belief that the integrating countries should

in fact have greater bargaining power combined than separately(19). He proposes a subtle mechanism (coordination device) toexplain how integrating countries are effective in making tradeoffs

between different policy areas more often at a regional rather thanmultilateral level (21). As the argument goes, increased transpa-rency due to relatively few participating countries possibly helpssubstantiate better a wide range of issues - from support for freetrade to environmental and labor standards and thus favors the

strength of the economic bloc.Some studies observe that IAS could induce participating

countries to play strategically against third countries in a non-cooperative, tariff-setting game (Abrego et al. 5; Grossman andHelpman 1). McMillan (Game Theory) gives this topic a solid


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theoretical background, while Kennedy applies it to real nego-tiations. The case rests largely on the same hypothesis presumed bythe terms of trade argument and is thus as much informativeexcept for the possibility to enter a retaliatory game.

Domestic politics interferes with IAS when countries imple-ment reform policies or contemplate partnership with unstable oreconomically weak countries. The argument has initially emergedfrom the literature on time-inconsistent policies, which Fernndezdescribes as that circumstances under which governmental

behavior undermines the credibility of optimal public policies (7).According to Hagen, standard solutions to overcome this

problem consist in the creation of appropriate institutions and of a

track record of consistent policies (35). There is a widespreadbelief that the integration process is apt at creating an enforceablemechanism including both those solutions (Whalley 16; Helleiner762), and in general superior than other possible alternatives(Fernndez 10). The commitment to integrate thus credibly provi-des an agency of restraint on any future reversal of previouslyannounced policies. Countries are assumed to find costs faroutweighing the benefits when reneging on reforms explicitly

undertaken through negotiations, such as trade liberalization ordemocratic change.

The security issue has accompanied the debates about theimportance of trade at least since Kant famously asserted in 1795that commercial ties would reduce the risk of European wars (qt. inSchiff and Winters 1). Schiff and Winters assume not muchdifferently from the original Kantian discourse that the larger thelevel of imports, the lower the likelihood of a security threatamong the partner countries. They conclude, perhapsunsurprisingly, that an economic bloc provides strong incentives in

the form of security dividends to non-member countries (28-29).Other researchers put more emphasis on contextual details to

show that integration negotiations purport to a complex balance ofinterests in order to inhibit any danger of conflict. Serdar describeseconomic alliances as groups of states seeking to improve theirsecurity in front of others by cooperating (3). But even ineconomic terms, trying to seek refuge from any potential

protectionist measure should be thought as a realistic objective


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especially for a small country (Whalley 17; Fernndez 17), themore so it is admittedly secured by means of side payments(Whalley 18; Schiff and Winters 28) from the more affluentmember states.

Further descriptions of objectives borrow from adjacent political science, and try to capture the economic significanceespecially in the pursuit of regional power or influence. Baldwinthus presents gerrymandering and voting power as likelynegotiating purposes. As they do not add conceptually much to the

previous discussion, but are nonetheless relevant to the nature ofthe interdependence, the topic is to be reexamined in section 3

below.

2.Objectives of integrating countries: Empirical arguments

The attempt to produce empirical support in favor of one ormore of the theoretically anticipated benefits has been based ontwo main categories of research data: quantitative measurements ofeconomic variables and direct evidence from the integrationnegotiations. As one of the oldest and most dynamic, theexperience within the European area has compelled much

attention. In spite of the quantitative emphasis the theory inspires,the formation of the Economic European Community (EEC) in

1957 is historically presented rather in terms of strategicconsiderations than as a result of conscious computations ofeconomic benefits.

Whalley exemplifies the original motivation behindEuropean integration as a cooperative game in using common trade

policy to increase the founding members' leverage in negotiationswith the U.S., including at a multilateral level (17). The

justification is by and large maintained by Fernndez to present the

individual search when most of the former European Free TradeAssociation (EFTA) countries sought the entry into the EU (20).

Arguments put forth by Moravcsik suggest that the postwarincrease in European trade can hardly be attributed to policychanges, but rather, at least until the 1980s, to structural factorssuch as geographical proximity and per capita income (490).

Other arguments leave the economic incentives aside alto-gether. Prevailing initially integration objectives are thus ascribed


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to helping preventing further European war (Whalley 18) or to theweight of American interest in the 1950s to deter the influence ofcommunism in Europe (Brabant 7). Even classical presentations ofthe economics of integration do not resist underlining that the

driving force behind the formation of the EU was the politicalunity of Europe with the aim of realizing eternal peace in theContinent (El-Agraa 13).

Along with the successive waves of enlargement, EUmembership has been seen as a way to be part in the European

political system of liberal democracy, explaining at least accessionnegotiations relative to Greece, Spain, Portugal, and, most recently,the Europe Agreements (EAS) (Fernndez 14). Presently, it is also

argued that the EU enlargement process is critical to a relativelystable, prosperous, and peaceful Europe (Josling et al.), carrieswith it a kind of peace dividend (Hagen 3), and attracts theCentral Eastern European Countries (CEECS) for geopoliticalreasons (Baldwin et al. 147). A further note on strategic behavior isgiven by evidence that some Member states made demands inorder to compensate for their willingness to accept the widening ofthe Community in such cases like the Integrated Mediterranean

Programs IMP in 1985 or the formation of the Single EuropeanMarket in 1986 (Reiner 78; Bache 68; Moravcsik).

This kind of argumentation has proliferated not only due toits inbuilt credibility, but also as a secondary result of less thanimpressive cost-benefit analyses. Pelkmans finds inconclusive theestimates on the welfare effects of trade creation and diversion forthe EEC from the period up to 1970 in the range of 0.15 per cent tomaximum 1 per cent of GDP (94, 113). Dyker presents estimatesof the static trade effects of the creation of original CommonMarket in the order of 1 per cent. Taking economies of scale and

competition effects into account raises the estimate, but only to astill modest 3 per cent. Bolder assertions even claim that all

estimates of trade creation and diversion by the EC which havebeen presented in the empirical literature are so much affected that the magnitude of no estimate should be taken tooseriously (El-Agraa 150).

Research conducted on the ongoing EU enlargementsimilarly reveals a fragile balance between costs and benefits,


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taking into account how much of the integrating countries' GDP isaffected as a result of trade liberalization. Lejour et al. reportmodel simulations indicative of modest welfare improvement forthe EU, at the level of 0.1 per cent, and significantly varying

welfare gains for the CEECS, in the range of 1.5 to 9 per cent (8),results largely confirmed by numerous other researches surveyed

by Quaisser and Hall (20-22). Other studies (e.g. Gacs and Wyzan;Kohler) compound the ambiguity about these evaluations by

predicting a net cost for the EU on the average of 0.15-0.20 percent

of GDP for the accession of five countries, and 0.37 per cent in thecase ten countries are absorbed. Additional research with respect tochanges in stock market indices and investments rates show that,

with the exception of the 1986 entrants, nothing automatic can beinferred about the benefits, just the opportunity to catch-up (Baldwin et al. 143-5; italics added).

Available data for non-European experiences with integra-tion suggest a similar mixture of objectives. Fernndez provides adetailed account on the 1988 Canada-U.S. IA, as well as the 1992Canada-U.S.-Mexico North American Free Trade Agreement(NAFTA). While the economic estimates of the direct macroe-

conomic effects on the U.S. were tiny and statistically insigni-ficant, a more beneficial exchange of concessions has seemingly

played the salient role for all parties concerned. Canada sought toobtain some degree of exemptions from the use of anti-dumpingand countervailing duties and safeguard measures by the U.S.

producers (17); the U.S. sheltered itself against future unfavorabledomestic policy disciplines undertaken by Canada in certain areas(18); Mexico concerned much with domestic policy reform andsecured very little in concrete tariff reductions or other concessionsfrom the U.S. (23). Improvement in the individual bargaining

positions is seen also central to the negotiators both for NAFTAwith respect to the EU and Japan (Fernndez 24) and for

MERCOSUR countries as subsequent leverage in accessionnegotiations to NAFTA (Whalley 17).

3.Constraints

The discussion so far has raised the important issue ofovercoming the problem of reliable representation of disparate


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integrating objectives. The economic factor is by no means a predominant explanation of integration, although one shouldconsider it more realistically diffused into a multiple-level inte-raction among negotiating countries. Some authors assign power a

precise meaning only when the analysis is applied to a particularsituation (e.g. Leap and Grigsby 204), or only in relationship withthe other party (Rao and Schmidt 671).

A comprehensive literature surveyed by Reza suggests thatthe states' behavior is determined by a three-layered system of

basic constraints embodying elements of independence,dependence, and interdependence (44), which eventually shed lighton the available and desirable courses of actions.

Conventionally, the formation of policy preferences has beenexplained in terms of domestic the independence level orinternational the dependence level constraints or both. Thework of several authors (e.g., Schelling; Mo; Putnam; Helpman)models bargaining as domestic and international games that are

played simultaneously, and shows that the bargaining outcome isresilient on the effective way a decision is reached in the first

place.

According to several studies (e.g., Patterson; Pahre andPapayoanou) this approach is inconclusive. What they suggest is

that negotiations rather encompass simultaneous effects on statebehavior of a third level of interactive decisions as well. Asproposed by Lehman, to make this conjecture explicit amounts tovalue the relative power of negotiating partners, an implication atlarge exposed by the literature on neo-functionalism andintergovernmentalism (e.g., Moravcsik; Bache). The concept issuggestive of the supplementary constraints impeding choiceselection, beyond the commonly described dichotomy of interna-

tional and national levels of analysis.This search for robust results induced a good strand of

applied research (e.g., Aggarwal and Allan; Lenway and Murtha;Patterson L.A.; McDonald) to develop the two-level frameworkinto variants of three- and four-level games with the intent to refinethe strategic analysis. Papayoanou exemplifies such additionalfactors that shape the preferences in the forms of domesticsentiment, power considerations, stakes in a particular situation,


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leaders' foreign and domestic policy interests, and leaders'assessments of the value of their alliance.

What eventually emerges from these last studies consists ofvaried solutions to define constraints, which poses a task of

elimination, which can only be accomplished by an examination ofthe cases (Conybeare 53). A precise interpretation is thussubsequently sought for at the three presumed constraining levelsof analysis. The debate reveals the problem of representation ofconstraints at each level.

a.The international level of economic dependencePutnam gives a classical representation of constraints at

international level:National governments seek to maximize their own ability to

satisfy domestic pressures, while minimizing the adverseconsequences of foreign developments (434).

The definition points to the dependence of domesticobjectives on the interstate relationship as the key determinant of

behavior in international relations.Analytically, the concept of power conveys the message on

the constrained resources a nation has in the conventional sensethat more power means better chances to arrive at the preferred

outcome. Serdar emphasizes two main approaches to power: powerby which states pursue and control others' behavior; and capacitystemming from their capabilities (2). The distinction is suggestivefor the analytical procedures to measure power. Various indicatorsof power asymmetry reveal the hegemonic context depicted by theformer case, while the latter indicates a more laborious process toinfluence decisions in international relations.

Hirschman's early work on economic dependency distin-

guishes between countries, which can act either as object or assubject of a policy using foreign trade to influence other countries'

behavior (68). He develops statistical measures of geographic andcommodity concentration of trade to discuss the extent a countrycould bilaterally constrain its commercial partners' choice.

Holzman applies a similar framework and argues that suchexercise of power has been used frequently in recent history (64-66). His examples include the U.S. against all communist


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countries; the U.S.S.R. against China, Albania, Yugoslavia andEastern European countries; the Middle East oil producers againstWestern Europe, Japan, and the U.S. (55).

Other approaches to asymmetry give a country's size a

subjective predictive value depending on the particular interaction.The underlying rationale offered by Lindert assumes that a countryis small if it is likely to be more dependent on a particular traderelationship with its partner country, viz. it trades exports andimports with low price elasticity of demand (191).

Conybeare exemplifies this kind of economic warfare in hismodel of trade war. The presumption correspondingly asserts thatas the disparity in size increases, the ability of the large country to

extract gains from the small or hurt it with retaliation increases; theability of the smaller country to gain from a tariff or hurt the largecountry by retaliation diminishes (26); the conflict engenders amutual loss if both countries are either large or small (27-28).

The benefits of size are documented in other contexts aswell. Alesina and Spolaore ascribe size a positive function of theheterogeneity of population's preferences, and a negative functionof the fixed costs per capita of government, including such costs

for creating and maintaining a monetary system, a bureaucracy, atax collection system (3-4). Their model is consistent with the

widely accepted view that international conflict increases thechances for success the larger is a country's size (14-15), but its

predictions become highly improbable in a tariff-formation setting.They conclude first that a world of few, large countries increasesthe probability of conflict, and second that the mass of observableconflicts may go up among small countries (16, 23), although bothtypes of countries would rationally have no reason to embark onsuch mutually harmful conflicts.

An appropriate inference from these results would be that power-based relationships predictably do constrain countries'

behavior in a bilateral game. It is at the same time obvious that thisasymmetric perspective does not provide for a comprehensiveunderstanding of interaction between states. On the one hand,when conflict among similarly sized countries is involved theexplanations are contradictory depending on how size is defined inthe first place.


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On the other hand, asymmetrical dependence is not by nece-ssity indicative of relative power. Bottom et al. weigh experienceheavily in forging a much greater willingness and ability to exploitthe power differential in the negotiation process. Experienced

players, they claim, use their risk preferences to achieve a moreadvantageous division of value (162).

Similarly, Wagner thinks that countries more realisticallyface unexploited opportunities to trade economic resources for

political concessions (463), a process which, if successfully

managed, could leave a country better off independent of thedegree of asymmetry. According to Grossman and Helpman,

policy constraints are relaxed, for instance, when a government

credibly makes use of domestic political contributions of variousspecial interests as an exchange currency for desired outcomes ininternational negotiations (12).

In contexts where political economy plays a rather powerfulrole it may be assumed a complex process to determine theoutcome of negotiations (Bottom et al. 147). Coalitions of partici-

pants and counter-coalitions, pivotal players are the normalrepresentations of a country's objectives and preferences. Countries

are rather prone to negotiate alliances in order to strengthen theirinfluence or to reduce their dependence by improving their

capabilities in competition with others (Serdar 3; Rao and Schmidt671).

Manzini and Mariotti's study aims at modeling such acontext in which bargaining behavior is regulated by somecollective decision mechanism. Although majority vs. unanimityvoting are likely to result in different bargaining's outcomes, theyargue that during the process proposals are made using an internal

procedure, i.e. a set of ex-ante rules of how to play the game (7)

and thus add an institutional structure to attain equilibrium. Ininternational negotiations, for instance, Conybeare remarks that the

Most Favored Nation (MFN) rule may constitute such amechanism later internalized in the politics of the domestic agents

by each player (72).

b.The national level of economic independence


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Rodrik observes that trade policies are almost always biasedagainst trade, rather than in favor of it (26). Several studies (e.g.Conybeare 50; Rodrik 17; Helpman 1) point indeed that a country'sexpected behavior may deflect from rational income-maximizing

objectives as politically-influential groups can be made better-offby policy interventions in trade.

Although a theory of domestic politics has yet to come to life(Helpman; Milner and Rosendorff), there is commonly ackno-wledged that nation-states embody country-specific governance

capabilities (Lenway and Murtha 513), which bear on the strategicinteraction a highly influential mixture of domestic politics. Whentrying to substantiate what those governance capabilities really

mean, economists like Bhagwati typically admit a composite ofideology, interests, and institutions as the key factors in settling ona certain outcome of trade negotiations.

Several attempts have been proposed to understand the waydomestic political decisions shape strategic interactions. Romerconstructs a model in which misconceptions, i.e. individuals'correlated errors, about how the economy functions play the keyrole. According to his theory, voters' and politicians' beliefs are

relevant to political outcomes (29). The search for institutionallyconceived means to expose political representatives to information

is the solution he accepts in order to provide any insights aboutthe source of seemingly inefficiently political decisions (3).

Rodrik's approach is more specific. He conveniently dicho-tomizes between demand-side of trade policy individual

preferences and interest groups, and supply-side of trade policy policymakers' preferences and the institutional setting. His analysishowever shows that a satisfactory treatment of all these issues would likely be intractable (3). What nevertheless makes this

distinction important is the manner in which political influencetranslates into bargaining advantage to a country. In this bargaining

environment, Mo argues that a negotiator operates with constraintsbecause she has to obtain the support of at least some of the otherdomestic interests.

Several studies considerably enlarge the subject to correlatemore directly political conditions with economic behavior. Olsonexplains slow economic growth as a positive function of the


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stability of the overall pattern of rent-seeking interests ordistributive coalitions. July similarly ascribes economic

performance to the absence of ideological divisions in thegovernment.

Milner and Rosendorff reach complementary results from aperspective they call electoral uncertainty, i.e. the majority in thelegislature and the executive are unlikely to share similar policy

preferences. They predict that an executive's ability to finddomestic consensus on an international agreement diminishes as

divisions in government increase, and the expected outcomebecomes more protectionist. These authors' evidence refers to the1993 nearly failed NAFTA ratifications; the U.S. rejection of both

the League of Nations in the interwar period and the InternationalTrade Organization in the late 1940s. Ameldung also documentsthe Turkey's choices of trade strategies in the postwar period andshows how liberal trade policies regularly got promoted in the faceof non-factional domestic politics.

The attempt to reveal the mechanism in greater detailnonetheless remains subject to analytical approaches with varyingdegree of explanatory power. Schelling's and Putnam's works

advance the conjecture that, given sufficiently great domesticconstraints, a country can have a bargaining advantage in

international negotiations. Mo attempts to model the predictedbehavior, and his results show that the precise outcome depends onthe institutional setting whereby domestic political power isdistributed in the medium range. However elusive this resultmay sound, it nonetheless underscores that a negotiating countryhas to make in fact more concessions under greater domesticconstraints.

Miller strengthens the case of failure to avoid international

conflict due to domestic problems when he finds that democraticand autocratic states indeed behave differently: the latter appear

more prone to escalate the conflict (399). His response, as well asthe Conybeare's lay emphasis on political vulnerabilities of leaders,such as economic recessions, levels of domestic, cyclical decline ofspecific industries, which discount the benefits of futurecooperation, and hence allow for protectionism.


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Grossman and Helpman capture the concept of tradecooperation as a measure of political well being. By theirreasoning, trade war equilibrium is highly dependent on the way agovernment's behavior reflects political conditions at home. A

liberal stance in international negotiations could thus be as muchexpected as a protectionist one under the circumstances of crediblecommitment on behalf of the executive to support variousindustries' interests.

Recent research in institutional economics is an appropriate

field, which economists turn to in order to comprehend thisdiversity of factors. North views institutions as humanly devisedconstraints that structure human interaction (10), faithful

reflection of the underlying incentive structure. In that sense, Juliexemplifies cooperative behavior in trade policy area as a result ofalterations in the institutional framework (19).

In a comprehensive study, Easterly and Levine make astrong case for the institutions, understood in the form of diverseinstances like political stability, property rights, legal systems,

patterns of land tenure and so on. Their findings explain cross-country differences in GDP per capita once one controls for

institutions. In their words, institutional quality seems to be asufficient statistic for accounting for economic development (33).

As easily can be inferred from these descriptions, the institutionalcontext is eventually made recourse to in order to gatherconvergent, even if disparate, explanations for domestic policyinfluences.

c.The issue-area level of economic interdependenceAggarwal and Allen suggest that it is reasonably to think of

cases where overall power may not always be fungible across

issue-areas (12). By consequence, the most preferred outcomes alarge country would normally envisage might be seriously

distorted by an apparently weak specific bargaining position, aconclusion also supported by the previous discussion on powerasymmetry. Trade negotiations, and particularly integrationarrangements, have become increasingly multilateral. Large-numbers trade games increase the complexity of interaction and


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admittedly change the expectations about countries' behavior(Alesina and Spolaore 23; Conybeare 55).

Papayoanou devises the concepts of collaborative-type vs.unilateral-type preferences in order to deal appropriately with cases

when compromises and even submission to the other's partyproposals represent reasonable conduct. Similarly, Langlois andLanglois conceive three possible classes of strategy whosecharacteristics lie in the way the act of deviating from expected

play is moderately, severely or not punished by the partner (819).

This literature enriches the influence tactics in a considerablywider range of determinants besides power. For example, Rao andSchmidt list among them cultural distance, conflict frames, trust,

interpersonal orientation, and time horizon (667).In Jervis' view, the actor is not supposed to understand the

logic of the theory; there are the actors' beliefs and expectations,which should be incorporated in the models of interaction. Theapproach to bargaining power thus attempts to settle on the best ofthe outcomes possible in a specific situation. That makes research

particularly challenging. According to Snidal, to establish thecorrespondence between an issue area (preferences, motivations)

and its game model is the toughest problem confrontingsuccessful empirical application of game theory (40).

Diverse explanations were proposed to understand power ininterdependence. Parts of them are simply conceptual. Commitmentand alternatives represent one of the answers in the sense that morecommitment leads to less power, while more alternatives bring aboutmore power (Leap and Grigsby 203). Resources too deserveconsideration because the ability to provide, obtain, and withholdresources is key to power (Leap and Grigsby 205). Lehman givescredit to that capability to create new options, to make choices, and

to constrain the choice selection of other actors (1). For Schelling,the actor's relation to the other player is to be understood as a

mixture of mutual dependence and conflict, of partnership andcompetition(89). Nalebuff and Branderburger lay on the value-added concept the same analytical value.

This research is particularly insightful because it drawsattention to the significance of the contextual issues. Schellinganticipates the discussion when argues that the search for a favorable


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outcome is not concerned with the efficient application of force, butwith the exploitation of potential force (5). Kennan and Wilson'sempirical data on labor conflict resolution similarly suggest that the

parties influence the outcomes irrespective of the bargaining setting.

A consistent approach to the topic offers the Leap andGrigsby's model which distinguishes between power that is available(potential power) and power that the parties actually use (enacted

power) (205). It provides so an explanation for the process by whichpower is accumulated or, alternatively, dissipated. In their view,

transformational factors account for the degree of the unused powerand may take the form of a particular party's strength of commitmentto a bargaining relationship; the alternatives available to a party; and

information available that has an impact on the bargainingrelationship (205). Because of the synthetic nature of this model, itsimplications are developed in the next chapter.

4.Preferences and strategic structures

It is widely recognized that preferences are one importantparameter of conflict (Bennett 31). A common understanding is thatthey reveal an ordered and weighted set of values placed on future

substantive outcomes that might result from interaction (Moravcsik24). Situational constraints provide the generic way to assess states'

preferences and further reveal the underlying strategic structures ofinteraction. According to Snidal, an explanatory view onnegotiations emerges when a certain game structure, defined by

preferences and available strategies, and corresponding game theorysolution concepts lead to inferences about the behavior of individualstates and about the overall outcome (43).

Manski argues that if such processes are to get any practicalusefulness, one need to know what classes of processes are prevalent

in the real world (4). His own representation of interactionsdescribes preferences influenced by the behavior of the group a

person belongs to, by the exogenous characteristics of the groupmembers, and by the common individual characteristics orinstitutional environments (24). Other significant results are implied

by experiments in evolutionary psychology, which assignindividuals one of the three behavioral strategies: co-operators -help the group at the expense of their individual rewards; defectors


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- accept the help of others; and punishers - punish defectors at acost to themselves (The Economist).

Generally, the essential features of these behavioral stancesare captured by a game structure in the form of assumptions about

actors, strategies, payoffs, and predictions about the outcomes(Snidal 45). In most applied research, strategic structures areunderstood in terms of simple 2 x 2 games to such an extent thatStone views them a ubiquitous feature of the analysis ofinternational relations (216). This perspective allows researchers to

use taxonomy itself as a tool of cognition (Serdar 12; Kreps 37-41).If this is adopted, the games formally include a description of

two policy choices available to each state (typically labeled

cooperate and defect), an outcome associated with each of thefour combinations of policy choices, and preferences for each stateover the four outcomes. The game-theoretical approach is usually

presumed to provide rigorous flexibility, in the sense thatmathematical logic provides the rigor, but dominant issues andactors' interests let contributors be flexible in their modelingchoices (Pahre and Papayoanou).

Rapoport et al. who show that strictly ordered preferences are

conducive to 78 conceptually different 2 x 2 games provide areference work in taxonomy. Nonetheless, analysts embark on

characterizing several contexts in international relations, e.g. war,nuclear deterrence, bargaining, crises, alliance formation, trade wars,and international cooperation, by only a few games structures withsuch odd names as Prisoners' Dilemma, Chicken, Harmony,Deadlock, Stag Hunt, Bully or Called Bluff.

The relevant point with the game labels is their suggestiveimplication with respect to the players' preference order over theoutcomes. That means that the same strategic structures may in fact

correspond to and explain different international issues if the samepreference orders apply. This inference inevitably makes scholars

like Fearon (Bargaining), Lichbach, Conybeare, and Aggarwal andAllen to focus on the question of the origins of these rankings andthe process by which payoffs are generated. The analysis is thusdeemed to detail how the negotiating countries would rank the fouroutcomes identified by the theoretical setup.


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A simple model of strategic structure in international trade ispresented by Conybeare (47). It is based on the partners' bilateraltrade structures, which may depict complementarities or similarities.Trade complementarities imply low elasticity of demand for each

other's products, and high costs to a trade war because costs ofdisrupting trade are severe; the partners by consequence prefercooperative solutions. Countries with similar economic structureswould have substitutes for each other's products and a higherelasticity of demand for imports; in this case, the conflict would be

more easily absorbed.A more appropriate methodology would be, following

Bennett, to integrate game theory with other perspectives and

endorse an eclectic methodology (20). Snidal embraces a similarview as he suggests assorted analytical tools as, for example, incor-

porating different perceptions, conflict dynamics, multi-level games,many moves (31), and testing different forms of complexities (39).

For Lichbach, several questions remain however open, asthose regarding the payoff structure, the extent of mutual andconflicting preferences, and the types of interactions. The analysison the particular case is indicative of the preferred course of actions.

The proper shortcut from the theoretical validity to practicalrelevance could be thus appropriately defined by the logic of

situation: the choice of strategy constrained by a country's or anactor's relative power.

5.Summary

The topic of economic integration has been received aheteroclite treatment with respect to the potential conflict andstrategic options which emerge during negotiations. Despite thewidely accepted framework of analysis, the traditional arguments

have received only minor support from a practical viewpoint, that is,what a nation's representatives actually pursue during trade

negotiations, from both theoretical and empirical studies. Theempirical research rather highlights the theoretical ambiguities thanunderpins different scenarios.

The complexity inherent with the decision-making processreceives important support from research. The game-theoreticalliterature provides much help in understanding the logic of


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develops an original interpretation of its elements in the context ofthe EU enlargement.

The variables reveal economic, political or social constraintsof strategic conduct and provide information on the extent the

negotiating countries are willing to make concessions. Theirpredicted positions on particular issues reveal a certain structure ofpreferences on foreseeable outcomes in the process of negotiations.In this perspective, the present methodology is so constructed thatit generally applies to any issue of strategic interaction, which

involves two distinct parties with sufficiently conflicting interests.The topic of agriculture is an application that presents theadvantage of a game of negotiations rich of contextual details.

A. Background on Community decisional mechanism

The enlargement negotiations were initiated and advanced tothe CEECS out from a complex EU decisional mechanism. It is forthis reason that this internal decision-making process hasfundamentally structured the carrying out of the negotiations.

The institutions entrusted by the founding treaties (TheRome, Maastricht & Amsterdam Treaties

, Articles 189-280) of theEU to carry out the provisions therein contained are: a European

Parliament, a Council of Ministers, a Commission of the EuropeanCommunities, a Court of Justice, and a Court of Auditors. TheParliament, the Council, and the Commission are usually known aspolicy-making institutions, and adopt legislative acts based onthe integration strategy periodically outlined by the EuropeanCouncil, an institution that convenes since 1974 at the highestrepresentative level of the EU member states. The way each of thethree institutions gets involved in the decisional mechanism

particularly influences the interaction during negotiations.The European Commission (EC) wields a highly visible

presence in operational functioning of the Community. It mayformulate recommendations or deliver opinions to ensure that the

provisions of the successive treaties establishing the EU areapplied, or take the required decisions in exercise of the pow

Cojan the Integration Game FINAL

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